A Simple Heckscher-Ohlin Synthesis of Trade, Investment, Factor Flows and Transfers

There is an extensive literature in the Heckscher-Ohlin framework which considers trade, investment, factor flows and transfers, but the models to investigate these phenomenon are typically different. This paper shows that all of these can be analyzed in the same simple two-sector trade model. A world-factor box diagram is used and it is shown that whether or not investment can duplicate the international trade equilibria will depend on which commodity is repatriated. It is shown that the assumption of tastes becomes crucial when factors flow, and when international transfers are analyzed the traditional results that the secondary burden of a transfer depends on preferences is re-established. It is shown that because of the Stolper-Samuelson result a tertiary burden or benefit is possible and indeed for one of the two factors a transfer could improve welfare.